Estate Planning Terms

AB Trust: A trust designed to assure that the personal estate tax exemption of each spouse is used correctly. The surviving spouse should have access to the assets of the deceased spouse during the remainder of the surviving spouse’s lifetime.

Administrator: A person appointed to handle the affairs of the deceased.

Annual exclusion: An exclusion allowing a person to give away a certain amount each year as a “gift” without paying gift taxes.

Assets: Items of value.

Attorney-in-Fact: An individual designated in a power of attorney document, to act as the agent of the person who has executed the document.

–B-

Basic Will: A basic will distribute everything to your spouse (if living) or to your children if 18 years or older.

Beneficiary: A person named to receive income or assets from a trust; someone who benefits from a will.

–C-

Codicil: A document which serves to modify the original provisions of a prior will.

–D-

Deceased / Decedent: A person who has died.

Durable Power of Attorney for Health Care: A written document in which a person names an individual to make health care related decisions for them in the event that they are no longer able to do so for themselves.

Durable Power of Attorney for Property: Same as above, except the decisions being made are property related.

–E-

Escheat: An assignment of property to the state because there is no verifiable legal owner.

Estate: Everything of value that a person owned prior to the time of death.

Estate tax: A tax placed on the net value of a decedent’s estate at the time of death.

Executor or Executrix: A person named in the decedent’s will to serve as personal representative in probating the decedent’s estate.

–F-

Fair market value: The market price for an asset as would be agreed to by a willing buyer and a willing seller.

Fiduciary: A person or institution that is legally responsible for the management, investment, and distribution of funds (i.e. the trustee identified in a trust).

–G-

Gift: A voluntary transfer of property for which nothing of value is received in return.

Gifting: An estate planning tool used to implement an estate plan by making gifts to intended successors of assets owned by the person making the gifts.

Grantor: The person placing property in a trust.

–H-

The Heir: A person entitled by law to inherit part or all of the estate of an ancestor even if a valid will was not left.

Holographic will: A will entirely handwritten by the testator. The date and all words in the will including the signature must be handwritten by the testator. The signature of the testator may or may not be witnessed.

–I-

Irrevocable Trust: A trust that is not amendable or revocable by the grantor. Normally created during a grantor’s lifetime.

Inheritance tax: A tax levied by the county of residence of a person who inherits something from a will. The rate of taxation applied will vary on the size of the inheritance and the relationship between the person who inherits and the deceased.

Irrevocable trust: A trust that cannot be changed after it has been established.

–J-

Joint tenancy: A form of joint ownership by two or more persons in which each person has an equal undivided ownership interest that passes directly to the surviving joint tenant(s) upon the death of any joint tenant.

–L-

Lateral succession: Succession of property ownership in which the property is transferred between members of the same generation.

Letters of Administration: Document issued by the probate court giving the administrator authority to administer the estate.

Letters Testamentary: Document issued by the probate court giving the executor authority to administer the estate.

Liabilities: The amounts owed to another by any person, family, or business (i.e. a mortgage).

Living trust: A trust established during the lifetime of the grantor.

–M-

Marital deduction: An unlimited deduction against the estate and gift tax for transfers made outright or in qualifying trusts to the spouse of the transferor.

–P-

Personal representative: An executor, administrator, or anyone else who is in charge of a decedent’s property.

Probate: A court procedure used for settling the personal and business affairs of a decedent. The procedure includes proving the validity of a will, transferring property to beneficiaries, and appointing an administrator if there is no valid will.

–R-

Revocable trust: A trust that can be changed after it has been established. A revocable trust becomes irrevocable upon the death of the grantor.

–S-

Sound mind: To be of sound mind means:

1. That the testator understands the act of making a will; and

2. That the testator understands what property is being included in the will; and

3. That the testator understands the proposed disposition of that property; and

4. That the testator knows and recognizes his or her heirs.

–T-

Tangible property: Property that is capable of being touched (i.e. land).

Testator: One who writes and signs a will.

Trustee: A person named to manage property for the benefit of the beneficiary.

–U-

Undivided interest: The interest in property owned by each joint tenants. Each tenant is entitled to an income share proportional to his ownership interest. If the property is sold, the proceeds are shared based on the ownership shares held by each tenant.

–W-

Will: A declaration made by a person, prior to death, that states how that person wants their estate to be divided.

Business Legal Terms

Annual Meeting of Shareholders Nearly all states require a corporation to hold an annual meeting of shareholders at which time directors are elected and other corporate issues are voted on.

Articles of Incorporation While different states may refer to this as a charter or a certificate of incorporation, the articles of incorporation, which conform to state law, must be filed with the proper state authorities and must convey the purpose of your corporation, the name, the primary place of business, names of directors, and the amounts and types of stock it is authorized to issue.

Articles of Organization A document filed with the Secretary of State that creates a limited liability company. It can include the name of the company, its purpose, the principal address of business, the Registered Agent’s name and address, duration of the company, and its members.

Articles of Incorporation The filing that creates a corporation and registers it with the state. This must be filed and approved by the Secretary of State.

Asset protection A form of financial self-defense which places assets beyond the reach of creditors.

Assets Anything owned or sometimes that which you control that has monetary value. This includes both real and personal property.

Assumed Name An alternative name to the registered name of an entity when the original filing was done with the Secretary of State. This is typically used for marketing or branding purposes if different from the exact registered name.

-B-

Bylaws Bylaws are the rules and regulations or the actual guidebook of how the corporation will be run.

Business Entity A separate organization or structure from you individually.

-C-

C Corporation A C corporation is the default tax structure of a corporation. Unless you elect otherwise the IRS will tax any newly created corporation this way. C Corporations usually face taxation at the entity level and then at the shareholder level.

Closely Held Business A closely held business typically has a small number of owners and is run by the owners being active in the business.

-D-

Directors Directors are those appointed individuals to make decisions on behalf of the shareholders for the corporation. Directors can then appoint officers of the corporation to assist in the daily activities of the corporation.

Dissolution Formal statutory liquidation, termination and winding up of a business entity.

Distribution Payment of cash or property to a member, shareholder or partner according to his or her percentage of ownership.

Dividend A dividend is a distribution of money or property paid by the corporation out of the corporation’s profits to shareholders. Dividend payments are subject to double taxation, the corporation pays tax on its profits and the dividend recipient must pay income taxes on the dividend payment, the same money is taxed twice. The directors of the corporation decide if a dividend payment is to be made and it can only be made if the corporation has profits.

Domestic Corporation A corporation is a domestic corporation in the state where it has incorporated.

Double Taxation Corporations that are treated as a separate legal taxable entity for income tax purposes. Therefore, corporations pay tax on their earnings. If corporate earnings are distributed to shareholders in the form of dividends, the corporation does not receive the reasonable business expense deduction, and dividend income is taxed as regular income to the shareholders. Thus, to the extent that earnings are distributed to shareholders as dividends, there is a double tax on earnings at the corporate and shareholder level. S corporations and LLCs are pass-through entities which are not subject to the double tax.

-E-

Equity Another term for ownership in an LLC, corporation or other entity.

EIN or Employer Identification Number Also known as a Tax ID Number this is the number given to your business by the IRS and is used for setting up accounts and tracking all income and tax activities.

-F-

Fiscal Year Any twelve-month period used by a business as its fiscal accounting period.

Foreign Corporation A corporation formed in one state or country but conducting some or all of its business in another state or country.

Foreign LLC A limited liability company formed in one state or country but conducting some or all of its business in another state or country.

-G-

Gift For tax purposes, the IRS recognizes as a gift any voluntary transfer of property without consideration whose value does not exceed the allowable annual exclusion.

-I-

Incorporate To form a corporation or to organize and be registered as a corporation.

Incorporator The person who signs the Articles of Incorporation.

Indemnification Financial or other protection provided by an LLC or corporation to its members, managers, directors, officers and employees, which protects them against expenses and liabilities in lawsuits.

Issued Shares The number of shares actually transferred to shareholders of a corporation.

-L-

Limited Liability The protection provided in LLCs and corporations that removes personal liability to an owner for company actions or debts.

Limited Liability Company A business entity that allows partnership organizational structure, but limited liability of a corporation.

-M-

Manager An LLC may be operated by an appointed individual or individuals who will oversee and carry out the daily activities and decisions of the business.

Member An owner of an LLC.

Membership Interest A member’s actual ownership in an LLC.

Minutes Some form of written record or notes which evidences decisions and meetings of a corporation or LLC.

-N-

Nonprofit Corporation Creation of an entity for charitable or other purposes which does not allow the organizers to receive financial benefit based on that status alone.

-O-

Officers Appointed by directors to manage the daily activities of the corporation.

Operating Agreement The main agreement of an LLC which will detail how the company will be run, by whom, the tax setup of the entity and numerous other protective and important items.

-P-

Piercing the Corporate Veil If corporate or LLC legal requirements are not followed a creditor or other party can challenge it is not proper and allow them to instead seek personal assets of the shareholder or owner.

Professional Corporation or PLLC Legal entities only available to certain licensed professionals.

-R-

Registered/Resident Agent According to NC laws, a business entity must have an actual physical address and named individual or entity within the state for serving process or other notices as it relates to the business entity.

-S-

S-Corporation An S corporation is another type of corporation which you must elect with the IRS. This will sometimes avoid the double taxation concerns of a C-Corp, but has restrictions on owners and structure of equity offered.

Stock A name for the equity or individual ownership unit or units of a corporation.

-T-

Treasury Shares Shares of stock which were issued to shareholders and later redeemed by the corporation.